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AMD, MU, and WDC Fell on HP’s Weak First-Quarter Earnings

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Chip supplier stocks react to HP’s earnings

HP (HPQ), the world’s second-largest PC maker, reported mixed fiscal 2019 first-quarter earnings on February 27. The stock fell more than 15% on February 28 after earnings. The stock fell, as HP’s revenue and guidance missed analyst estimates. Weak earnings sent the stocks of HP’s suppliers down. The stocks of CPU (central processing unit) suppliers Intel (INTC) and Advanced Micro Devices (AMD) fell 0.2% and 1.4% in the first half of the February 28 trading session. Memory chip suppliers Micron (MU) and Western Digital (WDC) fell 1.25% and 2.1%, respectively.

These losses bring us to the question of why suppliers reacted strongly to HP’s latest earnings.

What HP’s fiscal 2019 first-quarter earnings mean to chip stocks

HP’s fiscal 2019 first-quarter revenue rose 1.4% YoY but fell 4.5% sequentially to $14.7 billion, missing the analyst estimate of $14.88 billion. Its Personal Systems revenue rose 2% YoY as a 3% decline in desktop revenue was more than offset by 6% and 3% growth in notebook and commercial revenues.

Personal Systems revenue was driven by higher ASP (average selling price) as its total units sold fell 3% YoY with notebook units falling 1% and desktop units falling 8%. HP’s declining unit sales mean lower orders for suppliers.

HP’s adjusted EPS rose 8.3% YoY to $0.52 in the first quarter of fiscal 2019, meeting analyst estimates of $0.52. However, the company expects to report EPS between $0.50 and $0.53 in the second quarter of fiscal 2019, which is weak compared to analysts’ estimate of $0.53. This weaker EPS guidance sent HPQ’s stock down in the double digits.

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